Credit Suisse Boasts of Negative Returns

Bucking a trend among mutual fund companies not to advertise negative fund returns, Credit Suisse Asset Management of New York has boldly advertised the recent double-digit losses of its Global Post-Venture Capital Fund. The fund invests in companies that have received venture capital financing within the last 10 years.

The one-quarter page print advertisement appeared in the April 25 issue of The Wall Street Journal.

The ad carries the phrase, "start-up" along with a small photo of the feet of a runner as he takes off from starting blocks. The ad copy then says, "How do you spot global opportunities in their start-up phase?" Beneath the photo is the name of the fund and beneath that, the fund's Morningstar overall five-star rating as of March 31.

Next to the stars, in bold type the fund's year-to-date total return through March 31 of negative 22.16 percent and its average annual total returns for one year, from March 31, 2000 through March 31, 2001 of negative 47.03 percent, are printed. Its three year annualized return of 17.3 percent and its annualized total return since inception Sept. 30, 1996, also 17.30 percent, are also included.

Credit Suisse said it is running the ads because it has a multi-issue ad contract with The Wall Street Journal. But the ads are also running because investors said they were not disturbed by seeing a fund's current performance loss, the company said.

Credit Suisse recently conducted an online focus group with the aid of a market research company. The focus group included 10 people who were asked to discuss new Credit Suisse ads to which they were given access online, said Gail Eisenkraft, marketing director for the Credit Suisse Warburg Pincus fund group.

The ads being reviewed included the new fund group name, which was changed on March 27 from Warburg Pincus Funds to the Credit Suisse Warburg Pincus Funds, a change made to reflect Credit Suisse's acquisition of the fund group in 1999.

An online moderator led the focus group's discussion of the ads, said Eisenkraft.

One of the questions asked the group about their views on investing in a fund that had a good long-term track record but a lackluster short-term record. The group was asked whether the fund's negative short-term track record would prevent them from investing in the fund altogether, Eisenkraft said. The focus group participants unanimously said it would not, she said.

One individual said that it would not deter him from investing because he was aware of the bear market and its effect on mutual funds, while another participant said it was good to have all of the facts presented in the same ad, Eisenkraft said.

While the focus group participants did not review the particular fund ad Credit Suisse ultimately chose to run in The Wall Street Journal, the group's comments persuaded Credit Suisse to run the ad with the negative performance figures, she said.

"We think mutual fund investors are long-term investors," Eisenkraft said. "We are betting that the savvy investor can look past the current market condition. Lots of peers have moved away from performance advertising, but we would rather tell the whole story."

The ad also included a special disclosure that stated, "Due to current market volatility, the performance of the fund may be lower than the figures shown above." In fact, this was not the case on the day the ad ran. The $132 million fund's year-to-date performance had actually improved slightly to negative 19.47 percent through the close of business on April 24, according to Morningstar.

The ad also included the more common disclosure that, "The advertised performance was attributable to unusually favorable market conditions, and may not be repeated or consistently achieved in the future." That disclosure ran vertically alongside the ad. That disclosure is similar to ones that many formerly top performing mutual funds had routinely used since the SEC last year cited and fined some fund companies concerning their advertising. The SEC said the funds had failed to explain that their stellar performances were achieved through a concentration of investments in hot IPOs, or that market conditions were so favorable that such returns were not likely to be repeated.

In 1999, the Credit Suisse Warburg Pincus Global Post-Venture Capital Fund posted a 141.0 percent gain, placing it in the top one percent of its international stock peer group. That was followed by a 16.3 percent loss last year. But from its Sept. 30, 1996 inception through April 24, 2001, the fund had returned a cumulative 105.18 percent, according to Morningstar.